Notice - Insurance (Prudential Standards)(Insurance Group Solvency Requirement) Amendment Rules 2013 - Update

Summary

This is a Bermuda Monetary Authority Notice, dated 31 October 2013, confirming the final form of the Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Amendment Rules 2013 following a public consultation on a draft published on 2 July 2013. The Notice summarises the changes made in response to industry feedback and attaches the final Amendment Rules, which amend paragraphs 6 and 7 of the principal 2011 Group Rules and wholly revoke and replace Schedules I through XIII (the detailed Group Bermuda Solvency Capital Requirement, or Group BSCR, calculation schedules).

• Fixed income investment risk: Sovereign-guaranteed bonds issued in the sovereign's own currency and rated AA- or better qualify for a BSCR rating of 0 (0% capital charge), except for mortgage-backed securities; the capital charge for mortgages not in good standing is reduced from 35% to 25%.
• Eligible capital schedule: Provision is made to offset capital requirements associated with policyholder obligations against excess encumbered assets transferred from Tier 1 to Tier 2, and the presentation of the calculation of the difference between encumbered assets for policyholder obligations and policyholder obligations has changed.
• Other amendments: Various further changes to the Schedules are described as minor housekeeping amendments made after internal review or industry consultation.
• Stakeholder letter: The Authority has published a separate general stakeholder letter on its website responding to issues raised by the market during consultation.
• Paragraph amendments: Paragraph 6 of the principal Rules is amended to insert references to new Schedules IIA and VIIIA; paragraph 7(a) replaces the word insurer with parent company.

The attached Amendment Rules and revised Schedules set out in full detail how an insurance group must calculate its Group BSCR, including capital charges for fixed income, equity, interest rate/liquidity, premium, reserve, catastrophe, credit and operational risk, as well as the revised Schedule of Eligible Capital used to determine available statutory capital and surplus. All amendments were proposed to take effect from 1 January 2014.

Key obligations

• Insurance groups must calculate their Group BSCR using the revised Schedules I through XIII to the Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Rules 2011 from the effective date.
• Insurance groups must apply a 25% capital charge (rather than 35%) for mortgages not in good standing when calculating fixed income investment risk.
• Insurance groups must treat sovereign-guaranteed bonds (issued in own currency, rated AA- or better) as BSCR rating 0, except for mortgage-backed securities, which remain subject to their own rating-based charges.
• Insurance groups must apply the revised Schedule of Eligible Capital methodology for offsetting policyholder obligation capital requirements against excess encumbered assets transferred from Tier 1 to Tier 2.

Applies to

insurance groups, parent company (of an insurance group)

Deadlines

• 1st January 2014: Effective/commencement date on which all amendments to the Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Rules 2011, including the revised Schedules I through XIII, come into operation.